City nears 5500 mark as US jobless data lifts sentiment

The FTSE 100 Index climbed 64.42 points to 5494.16, overcoming wobbles earlier this week on nerves over Europe's sovereign debt crisis and the shock of two high-profile leadership changes at blue chip banks.

America's Dow Jones Industrial Average was up in early trade as

investor sentiment received a boost from news of a drop in US unemployment claims to 451,000.

The Commerce department also revealed a sharp contraction in the country's trade deficit in July.

Analysts said the reports helped to calm fears growth was slowing sharply and implied the US economy could soon pull out of a recent soft patch.

"We were expecting that things would slow down in the third quarter and start to pick up in the fourth quarter, but now it seems like the slowdown in the third quarter wasn't as severe as we feared," said David Sloan, an economist at 4CAST in New York.

Initial claims for state unemployment benefits dropped 27,000 to a seasonally adjusted 451,000, the lowest since the week ended July 10, the Labor Department said. That was well below financial market expectations for 470,000.

Separately, the trade deficit shrank 14 per cent to $42.8bn in July, smaller than the $47.3bn gap that markets had expected.

Figures on the UK trade deficit were dire by contrast, hitting the worst level on record, but this failed to hold back progress on the Footsie.

The trade disappointment saw sterling edge lower against most major currencies, down 0.1 per cent to 1.54 dollars.

A predicted hold on interest rates by the Bank of England added to the pressure on the pound.

Policymakers kept rates at 0.5 per cent for the 18th month in a row and also continued with the Bank's 200bn quantitative easing (QE)

programme.

Among stocks, Barclays and HSBC were both in positive territory as investors came to terms with the changes at the top announced earlier this week.

Barclays lifted 153/8p to 3233/8p as concerns faded over the appointment of multi-millionaire banker Bob Diamond as chief executive.

HSBC also turned in a better performance after Tuesday's announcement that chairman Stephen Green is leaving the bank to become a trade minister, with shares lifting 63/4p to 6615/8p.

Progress in the Footsie came despite a poor performance from retail stocks after major players including Argos owner Home Retail Group, music retailer HMV and supermarket Morrisons highlighted softer consumer confidence.

Home Retail led the fallers' board as it warned full-year profits were likely to be towards the bottom end of market expectations.

While it said Argos and DIY chain Homebase performed well in testing conditions, like-for-like sales for both divisions were still lower in the six months to August 28. Shares slipped 3 per cent, or 61/4p to 2151/4p.

Morrisons was also under pressure as the supermarket warned it expected the recent low growth in like-for-like sales rates to continue. Underlying profits lifted 14 per cent at the half-year stage but shares failed to respond, unchanged at 2921/2p.

Outside the top flight, HMV shares fell more than 10 per cent, or 71/4p to 591/4p, after it said first quarter like-for-like sales in the UK and Ireland dropped 14.9 per cent. It blamed a weak gaming market and the impact of the World Cup on the pipeline of new releases.

Commodity stocks bounced back after Wednesday's fall in commodity prices, including the benchmark price of crude oil. Among them, Vedanta Resources lifted 66p to 2038p.

The biggest risers were Royal Bank of Scotland, Barclays, Arm Holdings up 151/2p to 4031/4p, and Carnival ahead 82p to 2359p.